I R D A UPDATES- Need to wait and watch, if banks want to become brokers: InsurersNew Irda norms may not necessarily bring open architecture of bancassurance; RBI approval crucial While the Insurance Regulatory and Development Authority (Irda) has allowed banks to become insurance brokers, insurance companies said it still needed to be seen whether this would happen. “It is a positive step, especially for non-bank led companies, since it has been pending for a long time. However, we will have to see, over a period of time, if banks would be interested, and whether RBI would approve. Only after this, would we see an open architecture of bancassurance,” said Deepak Mittal, managing director & chief executive officer, Edelweiss Tokio Life Insurance. Insurance companies, especially the ones not led by banks, have been mooting for having an open architecture of bancassurance. According to current regulations of Irda, bancassurance follows a corporate agent structure. These regulations allow each bank to sell insurance products of one life, one general and one health insurance company each. While most of public and private sector banks already have a partnership, either as promoters or as corporate agents with insurance companies, non-bank promoted insurers believe they have lost out on this distribution channel. Though Irda has now enabled banks to become insurance brokers themselves, insurers are not very hopeful of seeing any immediate benefit. A senior official of a non-bank promoted private general insurance company said, “Getting approval from RBI would be the biggest hurdle for banks. Hence, we do not see banks rushing in, to obtain a licence.” In its regulations on licensing banks as insurance brokers, Irda said each applicant (scheduled bank) should have obtained prior approval of RBI before applying for a license to act as an insurance broker. The license, once granted, would be valid for a period of three years after which it would be renewed. The regulations, at this phase, do not seem too advantageous for banks, said officials. Amitabh Chaudhry, managing director & chief executive officer of HDFC Life said since the liability for each insurance policy would now be on the bank (as an insurance broker), it is not a major advantage for banks to become brokers. “It is not very clear as to whether all banks would have to become insurance brokers, or can they also continue as corporate agents. Further, with an enhanced responsibility, we do not know whether banks would look to become brokers. Also, we have to examine under what circumstances RBI would give an approval,” he added. In terms of business from one client, Irda said such banks could not have more than 50 per cent premium from one client and not more than 25 per cent of insurance handled by bank (as broker) is placed with the insurance company within the promoter group, separately for life and general insurance business. The regulation said such insurance brokers (banks) have to maintain separate accounts for insurance broking business and Irda can appoint appropriate officials to investigate into the books of accounts of such brokers. Chaudhry added it had to be examined whether banks would be comfortable with Irda officials examining their books, from time to time. Irda has earlier presented multiple proposals to open up the bancassurance channel. Apart from the proposal of letting banks become brokers, Irda had also proposed zonal structures of banks, wherein each bank could tie-up with different insurers in different zones. However, Irda sources said not many industry players were in favour of this proposal. In May, the Irda committee on insurance broking, in its report had said banks wishing to become insurance brokers might have to segregate a broking arm, which would be an independent accountable unit. However, the final regulations issued by Irda have removed this requirement. While RBI approval is required for banks to become brokers, Irda has maintained in any dispute arising out of insurance transactions, the jurisdiction of the authority (Irda) shall prevail. It added the laws applicable to insurance contracts shall be enforced and information in this regard shall be furnished to the RBI. The finance ministry has been in favour of banks becoming insurance brokers. In his budget speech this year, Finance Minister P Chidambaram said banks would be permitted to act as insurance brokers. However, this statement came at a time when RBI had expressed concerns against these draft rules. RBI, in one of its earlier financial stability reports had said extant regulations did not permit banks to become insurance brokers. RBI had added banks assuming the role of insurance brokers might lead to conflicts of interest, where the bank was also the promoter of an insurance company. Industry sources said Irda was in active discussions with RBI, to enable banks to become brokers, so that insurance penetration is India could be improved. Insurance penetration, measured as a percentage of insurance premiums to gross domestic product, dropped from 5.1 in 2010 to 4.1 in 2011. According to industry data for 2012-13, 65-70 per cent of total new premium of bank-led insurers was generated from their bank partners. For the industry as a whole, bancassurance (corporate agency-bank) channel accounts for 30 per cent of total new business premium collection.
Posted on: Fri, 30 Aug 2013 12:37:42 +0000
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